The Company hosted an investor presentation during its shareholder meeting last Friday. We see several positive catalysts ahead as the progress of independent colleges conversion is earlier than expectation and the Company looks for five acquisitions in 1-2 years. We forecast the Company to deliver 25.4% EPS CAGR in FY21-23E. If these catalysts materialize, the EPS CAGR should be even stronger. Maintain Buy and raise TP from HK$3.41 to HK3.61, still at 25.4x FY21E P/E.
- Conversion of independent colleges. The Company expects to complete conversion of its four independent colleges by 2021, earlier than previous expectation of each two in 2021 and 2022. In FY20, the Company paid RMB160mn management fees (28% of adj. NP) so the earnings impact by conversion is significant. We estimate conversion of four independent colleges could enhance 18% adj. NP in FY23E.
- M&A pipelines. The Company had secured certain acquisition targets and plans to acquire three domestic universities and two highly value-for-money vocational colleges in 1-2 years. The Company had RMB3bn cash as at 31 Aug 2020 and received more than RMB1bn tuition fees afterwards. In addition to internal resources, it plans to arrange onshore and offshore loans financing for the acquisitions.
- Strong overseas study demand. The Company admitted 18,000 students in 2020-21 school year for studying degree and master abroad in future, and targets to admit 30,000 students in 2021-22 school year. This should strongly supply Chinese students to Inti Education in future.
- Four vocational colleges to operate in 2021-22 school year. The Company will begin to operate Gansu and Hebei colleges in Sep 2021 and operate Jiangxi and Chongqing colleges in Mar 2022. Apart from M&A, the Company also has organic growth drivers.
- Maintain Buy. We lift our TP from HK$3.41 to HK$3.61 due to adjustment of HKD/RMB exchange rate from 0.88 to 0.83. Our TP is still based at 25.4x FY21E P/E, which is still at 1x PEG. Catalysts: (1) M&A; (2) unpeg of independent colleges; (3) policy overhang removed. Risk: surge of teachers’ costs.
